ODI campaign against MTO 'super tax' pays off

African diaspora are being charged twice as much as other regions for money transfer. PHOTO: Getty Images

“We do welcome the decisions of some African countries such as governments of Senegal, Nigeria and Ghana to revoke exclusive arrangements with MTOs. We hope fellow African countries will follow the example given,” Maria Quattr, a joint author in the report on remittances to Africa told CNBC Africa.

“Africans are paying twice as much as other regions when sending money to Africa. This is affected by less competition and market concentration by mainly two companies.”

The report also noted that restrictive business arrangements are also making it difficult for new players to enter into the market. This is also worsened by lack of transparency in currency conversions.

The United Kingdom’s Overseas Development Institute (ODI) says governments and regulatory authorities in 'sending countries' should do more to promote competition and encourage innovation in the remittances regime.

The companies being accused of swindling African diaspora are MoneyGram and Western Union.

Quattr urged financial regulators in the United States and United Kingdom to investigate the activities of money transfer operators so as to ensure that consumers are not harmed by these MTOs.

“We conservatively estimate that the two companies account for 586 million US dollars of the loss associated with the remittance ‘super tax’, part of it through opaque foreign currency charges.”

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According to the report, Lost in intermediation, the ‘super tax’ excess fees cost the African continent 1.8 billion US dollars a year which is enough money to pay for the primary school education of 14 million children in the region.

African diaspora workers are paying an average of 12 per cent in fees to transfer money back to relatives in sub-Saharan Africa.

The amounts lost in through transfers could be redirected to other critical sectors such as in supporting health, education, food security and productive investment in agriculture.

African governments have been encouraged to do more to secure a better remittance deal for their citizens.

The global community pledged to cut remittance charges to five per cent by 2014, yet this ‘super tax’ shows there is a long way to go.